THE 4th HIGHER EDUCATION FORUM, 2012

Total Approach to Financing Higher Education students loans

Mr. Asangye N. Bangu

Naura Springs Hotel, Arusha. 13th – 14th September, 2012

Outline

1. Introduction

2. Snapshot of the HESLB

– Issuance and Repayment of loans

– Challenges facing HESLB

– What should be done?

3. Methodology, Data and Analysis

4. Total approach to higher education students loans

5. Policy recommendations and framework

1. INTRODUCTION

• Financing of students in higher learning institutions in Tanzania, has over time largely being dependent on Government resources, which have been extended through various forms.

• Cost sharing in Tanzania has been implemented in phases; phase I(1992), phase II(1994) with gradual increase of the HE costs load to students and parents.

• The Third Phase was embarked upon in 2004 with the establishment of the Higher Education Students Loans Board(HESLB) by Act No. 9 of 2004. In this phase, students were required to meet the costs enumerated in Phase One and Two as well as tuition fees.

• In the course of implementing its obligations as mandated by the Act, HESLB has been successful in creating enabling environment for increased enrolment in higher education institutions.

Year Students loaned Increase (%) Amount loaned Increase (%)

1994/1995 6,061 1,651,070,000 1995/1996 6,780 11.80% 1,768,059,900 0.00%

1996/1997 7,951 17.00% 2, 030, 801,500 14.80%

1997/1998 7,701 -3.00% 2, 790, 580,629 37.40%

1998/1999 8,227 6.80% 3, 609, 982,950 29.30%

1999/2000 9,101 10.60% 3, 830, 471,000 6.10%

2000/2001 10,008 9.90% 4, 091,464,441 6.80%

2001/2002 12,376 23.60% 5,362,583,000 31.00%

2002/2003 13,223 6.80% 7,308,809,350 36.20%

2003/2004 15,467 16.90% 8,776,638,644 20.00%

2004/2005 16,345 5.60% 9,883,224,500 12.60%

Average increase - 10.60% - 19.42%

Table 1 shows trends of financing higher education students from July 1994/95 to 2004/2005.

Year Students loaned

Increase(%) Amount loaned Increase(%)

2004/05(By the Ministry)

16,345 - 9,883,224,500.00 -

2005/06 42,729 161.4 56,111,371,483.00 466.7

2006/07 47,554 11.3 76,071,839,629.00 35.7

2007/08 55,687 17.1 110,873,883,141.00 45.6

2008/09 58,798 5.6 139,093,681,094.00 25.5

2009/10 72,035 22.5 197,348,958,875.00 32.9

2010/11 92,791 28.8 231,855,927,151.85 24.5

2011/12 94,773 2.14 317,780,000,000.00 38.14

Average increase - 12.49 - 33.7

Table 2 shows trends of financing higher education students from July 2005/6 to 2011/2012.

2.1 Snapshot of the existing Higher Education Financing in Tanzania through HESLB

• As revealed from above, HESLB inherited loans amounting to Tzs.51,103,685,914.00 issued by the Government between 1994 and 2005

• After its establishment in July 2005to date, HESLB has issued loans valued at Tzs. 1,087,858,123,119.80

• Total loans disbursed to Higher Education students between July 1994 and June, 2012 stands at Tzs. 1,138,961,809,033.80.

2.2 Loan Repayment efforts

• It is worthwhile to point out that, from its establishment, the Board was vested with the duty of collecting loans issued by the Government from 1994/95.

• This assignment had to start with establishment of a database for all those who were given loans, particularly those who were given loans by the Government and hence effective loan repayment begun in 2008.

• Cumulatively a total of 243,566 students have benefited loans from 1994/95 to 2011/12 as at 30th June2012.

2.2 Loan repayment Efforts….

• Out of those A total of 110,529 beneficiaries with a total loans of 160.7 billions are having their loans due for repayment, with 39.5 billions being installments due for collection.

• The cumulative loan beneficiaries traced up to

30th June, 2012 were 43,946 which were 40% of the 110,529 students whose loans are due for repayment. Out of these 20.1 billion have been collected from 28,321 beneficiaries

2.3 Challenges facing HESLBLike in other countries, HESLB has been encountering challenges which militate against its operations this includes:– General reluctance of the public on cost sharing policy

thus a feeling that the funds provided by the Loans Board are grants and not loans thus fully repayable.

– High rates of expansion in higher education and consequently large increase in the number of students anticipating a student loan as the core means of support,

– Insufficient funds for loans to cover the growing demands of loans by all the needy and eligible students,

2.3 Challenges facing HESLB……– Inadequate system of identification and verification of

financial ability of loan applicants and their parents/guardians,

– Low rate of repayment emanating from difficulties in tracing the loan beneficiaries, and general apathy towards loan repayment and submission of wrong information by students.

In view of the challenges mentioned above, it is apparent that the current modalities for mobilization of funds and issuance of loans to higher education students need to be critically examined with the view to suggesting sustainable modalities of funding and sustaining the Higher Education.

2.4. What should be done?• This paper intends to unveil a conceptual framework for a

unified efforts for higher education students financing by analyzing the social economic factors influencing demand and mapping of higher education financing.

• It will therefore analyze the demand side which will focus at the principle of channeling education resources through students and their parents contribution towards financing HE students

• Mapping of the higher education students’ financing through analyzing the economic factors affecting suppliers to funding in the form of formal public financing, formal private financing and informal private financing.

3.0 Data and Methodology

• Secondary data from a sample of 2,923 students enrolled in –University of Dodoma, –University of Dar es Salaam and –St Augustine University

• The Quota Random sample has been selected and analyzed using SPSS to obtain pattern for each independent variable

3.2.Methodology

• The study has adopted Frequency Distribution Analysis by using pivot tables for all data to run the pattern of applicants’ key variables

• The study on the other hand has analyzed factors affecting the demand of higher education students financing:– Sex(S), Parents’ education level (Pe), Social

economic status (Ss), Family assets (Fa), Costs of lower education (Cs), An error term (ε)

Summary of Means test results for the total sampled students

MTGRADE Number of students PercentageA 158 5%B 637 22%C 566 19%D 380 13%E 212 7%F 214 7%G 461 16%H 131 4%I 62 2%J 39 1%K 63 2%

2923 100%

3.3 Major Findings• Fig 1: reveals that – applicants with requirement of over 80% accounts for a

larger percentage of 22% – Applicants with requirement of less than 50% accounts

for 32%

• The distribution also indicates that these students have different pattern indicating great deviance in terms of their economic capabilities, thus calling for a various financiers with different set of requirements to engage in providing financing.

COUNT OF FATHER_EDUCATION( NEEDY)

100%

ADVANCED DIPLOMA/DEGREE 6 3.8%

CERTIFICATE/DIPLOMA 4 2.5%

MASTERS/PHD 3 1.9%

NONE 87 55.1%

PRIMARY 46 29.1%

SECONDARY 12 7.6%

COUNT OF FATHER_EDUCATION(NON NEEDY)

0%ADVANCED DIPLOMA/DEGREE 13 20.6%

CERTIFICATE/DIPLOMA 10 15.9%

MASTERS/PHD 16 25.4%

NONE 6 9.5%

PRIMARY 8 12.7%

SECONDARY 10 15.9%

A Comparative analysis of needy and non needy

3.4 Comments• The results obtained in the analysis could also

be found when other independent variables;– Family assets, family living standard, parents

occupation and lower level schools attended.

• Hence its true that other financiers such as commercial bank, like NMB could extend financing to families requiring only a smaller part of the loans as they also qualify for the commercial loans considered at a concessional rates

4. The total approach to HE students financing

4.1 Experiences from Other Students Loan Schemes

• The vast majority of countries which utilize funds from financial institutions to issue loans are developed countries, including USA, Australia, UK, and Sweden. The developing countries that utilize funds from financial institutions to issue students loans include; Malaysia and Chile.

• Experience gathered from neighboring countries with similar loan schemes namely Kenya, Rwanda, South Africa and Ghana shows that no other country has started sourcing students’ loanable funds from private capital market. They entirely rely on Government subvention and loan repayments to raise the required loanable funds.

• Considering the infancy of primary and secondary private capital markets in Tanzania, coupled with low incomes of people, the concept of student loan sustainability need to be re-defined to consider continued funding of student loan scheme through Government subvention, loan repayment and Engagement of Financial Institutions( Banks,FMIs,UTT ) supplemented with limited borrowing from banks.

4.2 The Unique Students Financing in Tanzania

– Government funded students’ financing extends loans to students attending both public and private institutions.

– This has increased the overall access to higher education and therefore implying increasing the participation rate of the age cohort that ought to be in higher education;

– In average, 65.7% constituted male students whereas 34.3% constituted female students among those who received loans

– The transformation in the higher education enrollment has been enabled by the success of Secondary Education Development Programme (SEDP) Implying increasing enrollment trends.

4.3 Social economic factors affecting demand for higher education financing

• Responding to the pressure of growing social demand for education, expansion which requires sizeable increase in public expenditures could be contained by offsetting additional revenues from increases in student fees, by reduced public institutional support.

• In many countries, the relative low enrolment of students from poor economic backgrounds in higher education is a cause of social concern.

• Therefore, increasing the access to higher education among these segments of the population has become a major element in educational and social policies.

4.4 . The Higher Education Students’ Loans Financing Mapping

Financing hinges in the following four main key players, including; • Formal Public Financing: Government subvention mainly from tax revenues

• Revolving funds : Amount collected from the matured loans as well as interest charged on loans currently

(6%p.a)

• Formal private financing: Engagement of FIs in financing able students (Including CRDB Bank, NBC Bank, NMB Bank, and other prospective banks)

• Informal Private Financing: Family contributions(Harambee!), Charity organizations, Religious institutions

4.5 Higher Education students’ Loans financing Mapping……

• The main focus of the analysis here is establish the market share for which each financier is accommodating out of the total demand for loans existing in the market.

• This is from the basic fact that the pattern of economic abilities of students varies significantly, hence a need to establish the distribution of students by category of their background,

• Thus enabling mapping of financiers to the relevant target, through which the load of financing is distributed accordingly.

5. Policy recommendations

5.1 Borrowing by HESLB from Financial Institutions and Banks

–Creditworthiness of the majority of students and their poor parents may prevent access to students’ loans on commercial rates

–Government guarantee HESLB to take loans from commercial banks and financial institutions at a concessional interest rate

5.2 The engagement of other financiers

• Given the statistics of the beneficiaries of loans and non beneficiaries

• There currently about 17% of students who apply for loans and miss, but are still in colleges

• Financial institutions with such a product like NMB, CRDB, UTT and SMEs should engage themselves to issue financing to students whose family can afford the terms and conditions set by these institutions and hence reduce the reliance on HESLB loans

Thanks for you attention